Using Accountant Help in Buying a Business

You will most certainly need to use accountant help in buying a business. Some business purchase transactions are easier to deal with than others, but unless you are an accountant with business buying experience and solid tax experience, an accountant is necessary.

Accountants can sometimes be a good resource for possibly finding a good business for sale and finding a good business attorney. But they are not usually a good source for business related advice and it's not their place to give that advice. Unfortunately many will push it on you if you let them.

The remainder of this section will explain using accountant help in buying a business by getting involved with a business buying/selling savvy accountant.

Accountant Help in Buying a Business- Reality Check

Some people think a smart accountant is the end all be all knowledge resource for buying a business.  This includes valuing a business.

The reality of the situation is that they are what you, the client, make of them and their services. Getting an accountant to help in buying a business is no different than using them for any other financial aid.

You need to keep in mind that some accountants are better than others like anybody else you may come across that provides some sort of professional service. Just like picking out a doctor, you must feel comfortable with them personally and with their professional experience.

Know this: You need to use a CPA. This skill set is much different than a bookkeeper or a friend that is a CFO at another company.

Accountants are very good at one thing; history. They crunch numbers based on historical data to let you get a true picture of the business you are looking at and find any hidden finance related inconsistencies.

They can also sometimes model forecasts but are mainly very adept with past/current financial data and tax related implications regarding the purchase and operation of the company.

Accountant Help in Buying a Business- When Should I Hire One?

You should have an accountant ready to go before you actually start looking for a business to buy but after you have done your prep work .

At this point you won't need their services so make sure the one you choose understands that. There is no need to put any kind of deposit or retainer down at this point either so don't get sucked into putting out any money.

Accountant Help in Buying a Business- Why Should I Hire One?

You will need accountant help in buying a business when you have decided to put in an offer and a Letter of Intent (LOI) has been established.  If you are working with a Broker, they will have an LOI for you to use. If not, you can always get a basic LOI template.

Inside of the LOI, your business buying savvy accountant can help make sure that the important list of contingency items that must be met for you to conduct your due diligence such as what financial information or business related lists you wish to see. A Business Broker will also be able to help you with this information.

Beyond helping with the due diligence, your accountant will be the one to determine how the funds you are paying for the the business will be distributed for your business financial records and taxes.

I should warn you that what you don’t want them doing for you is performing a valuation, unless they have a lot of experience doing so with the industry you are looking at. This is not their strong point.

They should be taking the due diligence financials (P&L’s, Balance Sheets, Tax docs, etc.) and comparing them to what you were told via the Seller’s business profile as well as making sense of them to paint a financial picture for you.

 A CPA should be able to show you past performance versus current performance. They may also be able to give you an idea of the future performance. Hopefully they can set up a spread sheet for you to try and run some possible projections by adjusting numbers on the spreadsheet. 

A good accountant will also apprise you of any tax related issues that may come about regarding the business itself and with financing the purchase of the business with personal, bank, or seller funds.

 Don’t bother asking their opinion of whether to buy or not. Even if they have an opinion, it shouldn’t sway you either way.

You have seen the business and during due diligence you should be observing it even more in action. That in conjunction with the financial picture the accountant paints should be your indicators.

Even if the business has numbers falling off, as long as there is no missing information (like a ridiculously low payroll) it does not mean the business is a bad buy. It may mean that the current owner is just flat due to being ready to retire or just plain losing interest.

That’s why a Business Broker or Advisor can add good insight with the financial picture from the Accountant.

Accountant Help in Buying a Business- Hiring One

Hiring an accountant to help in buying a business should not be an extremely difficult task.

Your best bet is to first ask around to business attorneys, business brokers and other business owners regarding accountants that are versed in the buying and selling of small to medium sized businesses. Even better, one that knows your industry because they have multiple clients in that particular industry.

There is no need to get an accountant that does big business work. This is over kill on their skill set and their price tag that goes with it. There is also no reason to get an accountant that just deals with personal taxes and accounting.

It is important that your accountant has experience with the type of business you are buying or they will not be much help with making sure you get the right financial information and they will have a difficult time helping you piece things together especially when buying a high cash based business with usually poor financial documentation.

How much will it cost? Unfortunately you really need an accountant for your due diligence and you will most certainly need one for when you are actually running a business. If you chose one correctly by experience and fit with your personality, it will be worth the money.

Although the rates can be all over the board depending on where you are located, generally the rates should be in the range of $120-$175 an hour. With this said, it will probably cost in the neighborhood of $1200-$2000 for most small business purchases.

Not ridiculous but it adds up quick if you are not prepared and end up going to due diligence on 3 or 4 businesses instead of 1 or 2.

Accountant Help in Buying a Business- Some Final Notes

I just wanted to quickly sum up the facts about using accountant help in buying a business.

• Find an accountant with the proper background for the business type and purchase price range you will be looking in before you actually start looking.
• Like both their experience and personality/how they treat you.
• When you get them involved, you should have already decided to buy the business barring any financial inconsistencies that crop up when your accountant does his due diligence with you.
• Know what you you should expect to pay. If they have the right background and buy/sell experience and the rate is in the acceptable range, go for it.
• You are the boss, they are the hired gun.

Making the right choice regarding an accountant is crucial but much of that choice is based on your preparation before starting to hunt for a business.  Do not overlook this fact.

A good accountant will also help to make sure you get all of the key financial docs from the Seller. Those key docs are based on the type of business you are looking at.

Again, that’s why knowing what you want to buy and hiring an accountant with a background in that business along with due diligence experience is important.